Archive for the ‘Euro crisis’ Category

Politicians are divided about whether to pursue a policy of austerity and thereby reduce public expenditure and the national debt or a policy of growth to reduce unemployment and the drain on the public purse. Both policies are potentially disastrous if carried to extremes.

Too much austerity leads to a massive waste of resources, deterioration in the national infrastructure, and civil unrest. The country needs more houses, better railways roads and airports and gainful employment for its young people.

Too much growth leads to inflation, high interest rates and strikes for more pay.

The best solution is to replace the massive amount of money lost in the recession by printing sufficient new money to restart economic activity. In the 1930s, Britain came off the gold standard. Printing a controlled amount of new money is the modern equivalent. All through our history, currency has been devalued to promote growth.

Printing money inevitably leads to devaluation of the currency and in consequence inflation, which is why the process needs to be controlled and open. However, it need not lead to high interest rates or excessive inflation if a process of quantitative easing is followed. When money is required for infrastructure projects or housing, it can be printed instead of borrowed. . Any resulting rise in Government borrowing is easily countered by quantitative easing used to buy in and repay an equivalent amount of Government Stock.

Austerity is required to stem waste of public money and preserve confidence in the currency, but this must not impinge on the infrastructure, housing and other projects needed to kick start the economy. Some quantitative easing should be earmarked for loans to businesses and mortgages. If the banks have no money to lend, the Government should step in and fill the void.

James Lingard is a retired solicitor who specialised in banking and insolvency. He is the author of Bankers to Bankruptcy and Lingard’s Bank Security Documents.